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Maximizing Tax Benefits & The Advantages of Private Real Estate Investments

March 31, 2024

Private real estate investments offer a host of potential benefits for investors seeking diversification beyond traditional stocks and bonds. While the tax implications can vary, here are four common tax advantages to consider when adding private real estate to your investment mix.

  1. **Depreciation:** Depending on the type of real estate investment you hold, IRS rules may allow you to deduct depreciation expenses from your taxable income. This deduction helps offset the costs associated with maintaining and aging property, potentially lowering your overall tax bill.

  1. **Capital Gains Taxes:** Holding onto private real estate for more than a year often qualifies you for lower long-term capital gains tax rates. These rates typically range from 0% to 20%, offering potential tax savings compared to short-term gains taxed at higher rates.

  1. **Pass-Through Income:** Many private real estate investments, such as limited partnerships (LPs) or Delaware Statutory Trusts (DSTs), pass earnings directly to investors without paying income tax at the entity level. Instead, investors report these earnings on their tax returns and may qualify for deductions on pass-through income, reducing their tax liability.

  1. **Tax Deferral:** Rather than immediately paying taxes on capital gains from property sales, investors can defer taxes by reinvesting in opportunities like Qualified Opportunity Zones (QOZs) or engaging in 1031 exchanges. This allows investors to reinvest gains and potentially accumulate wealth over time.

Exploring private real estate investments can offer significant tax advantages for investors seeking to diversify their portfolios. By understanding and leveraging depreciation, capital gains tax rates, pass-through income, and tax deferral options, investors can potentially lower their overall tax burden while building wealth over time. If you're interested in optimizing tax efficiency and exploring these opportunities further, consider consulting with our team.

Scott Offerman helps investors navigate obstacles and fix problems which commonly occur during a Real Estate Investment Sale utilizing a 1031 Exchange.

Scott Offerman


1031 Financial

Cell: 917-887-0166

By Appointment Only

321 West 44th Street, Suite 200

New York, NY 10036